Good morning, and thank you for joining us today. I'm joined by Peter Aquino, our Chief Executive Officer; and Jim Keeley, our Chief Financial Officer. Following prepared remarks, we will open up the call for your questions. The presentation and earnings release we reference in the call are available on our Investor Relations page on INAP's website.

During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP measures to the most directly comparable GAAP measures are included in today's earnings press release. Management believes that our presentation of non-GAAP financial measures provides useful supplemental information to investors regarding our results of operations, and our non-GAAP financial measures should only be considered in addition to, and not as a substitute for, or superior to any measure of financial performance prepared in accordance with GAAP.

Today's call contains forward-looking statements as described in Page 2 of the presentation, which we urge you to read. These statements are not guarantees of future performance. Actual results may differ materially from these forward-looking statements due to assumptions, risks and uncertainties that are described in more detail in our filings with the SEC. We undertake no obligation to amend, update or clarify these forward-looking statements made as of today, August 6, 2019.

Thank you, Richard, and Good morning, everyone. I will discuss 3 main themes today. This will catch everyone up since the first quarter call, when we announced that we launched our strategic review.

First, I'll cover the second quarter results leaping off of our new baseline after 2 years of rebuilding INAP into INAP 2.0. We are very encouraged by the turnaround and now focus every day on optimizing our portfolio. The data center closures that we previously announced are now all complete, and the last of the revenue and EBITDA impact is now behind us.

Second, I will comment on our outlook for the year. In short, we are on track with our free cash flow objectives at approximately $70 million, defined as EBITDA less CapEx, and we're currently placing all planned tuck-ins on hold given our strategic activity.

With sales momentum, reduced churn and cost-savings efforts in place, we expect continued consistency in the balance of the year and project an outlook for revenue and EBITDA that is on trend with June year-to-date. We're also reducing CapEx significantly in our outlook to focus on success-based deals and waiting to see what happens with our strategic review to avoid any market duplication and any potential mergers. All of this has kept free cash flow targets in line.

And finally, I'll provide what information I can to update you all on the types of interest that we received, either through outbound efforts by our advisors Moelis and LionTree or inbound interests given our attractive data center cloud and network portfolio. I know that you will appreciate that we cannot go too deep into these conversations today, but rest assured that we have explored a range of interests from certain existing operators exploring combination possibilities, others who are focused on specific data centers or business units, and others who are considering a strategic investment to take advantage of expected consolidation in our industry.

We have always believed in gaining scale, so we're pursuing the most actionable opportunities aggressively and not expecting to drag this initiative out too long. As you can appreciate, we can provide no assurances regarding the outcome of this initiative, but we are committed to considering transactions that are in the best interest of our shareholders.

So at this point, let's turn to Slide 4. We had a solid second quarter, demonstrating stability in our new baseline. Reported revenue of $73 million was about flat, with EBITDA up to $24 million. There were lots of positives in the quarter -- namely operations improvements, good sales cadence and lower churn. Our increase in installation backlog is also very encouraging and back up over $20 million.

Our current mode is to manage and sell into the portfolio that we have as aggressively as possible with our direct sales force and channel partners. The sales team had a very good bounce-back in Q2 as we recognized that the larger enterprise deals tend to have longer lead times. Our goal is to get the backlog installed as soon as possible and continue to build our pipeline into 2020. Both Phoenix and Atlanta sales funnels have been increasing significantly, and we're pushing really hard to get a few right over the line.

Other highlights for the quarter include our sales team scored its first megawatt deal of the year, which was a 2-cushion shot. This latest win gives us a new anchor tenant for our L.A. flagship expansion project. I know that our sales team was missing good opportunities in that market lately since we maxed out in power, so we're very excited about our expansion investment.

We are clearly pivoting in the right direction with our retail plus wholesale strategy going into next year. We are engaging in enterprise deals of size like never before and see a lot of new activity at the edge in the 1- to 3-megawatt territory. This could provide meaningful organic growth, and in our case, at relatively lower CapEx when we sell into an existing site with capacity.

As you would expect, many strategic discussions tend to surround how we can unlock the upside to this enterprise opportunity. We believe that continued execution, front-end marketing and promoting a greater awareness of our colo plus connectivity advantage will help us gain our fair share. We remain optimistic about our potential in high-absorption markets where our flagship data centers are located and are working with our customers across multiple sites to help them grow their businesses.

Another great development is that we had one of the lowest churn quarters in years. This is a great credit to our technical support, customer service and network operations teams. We have centralized certain first-responder functions and have immediately seen the benefit. Customer support is becoming a core competency at INAP.

In 2Q, we also launched a new cloud product called INAP Intelligent Monitoring. This tool gives our bare metal customers more control on information to optimize their own performance. This product will ultimately incorporate other aspects of our footprint in the INAP portfolio, including colo and network elements, which can be very sticky.

Finally, we are committed to being balanced in our approach to spending and aware of leverage pressure felt by many in the industry. Several operators have had their debt downgraded, and there's a recalibrating of expectations of what a prudent debt coverage ratio is. This is why we are totally focused on free cash flow and maintaining guidance on EBITDA less CapEx of approximately $70 million.

Our investments are success-based, and given the relative newness of our 14 INAP data center flagships, we can be conservative and build towards a positive free cash flow profile. We want to build in an appropriate runway for INAP to operate its business plan and capture upside over the long term.

Let's turn to Slide 5 to discuss the INAP attributes that we've been covering with the strategic review. INAP has evolved into a very attractive data center portfolio primarily in North America, but with emerging opportunities in Europe and APAC. We claim 52 data centers across 21 metro markets, primarily through Tier 3 facilities.

However, our bread and butter are clearly generated out of our 14 flagship data centers. Nearly 85% of our footprint and capacity is driven by those 14 sites in major markets, as you can see from the chart. This is very attractive and a relatively low-cost platform given our Tier 3 design data centers in key high-absorption markets.

INAP is in a unique position with space and power in major markets to address enterprise and retail demand for colo and private cloud. Network performance, data center connectivity and connections to the public cloud operators are a differentiator and one of the main reasons why customers choose INAP. We expect customers to continue to pursue hybrid colo and cloud environments to satisfy their business models, and INAP has the right enterprise products to help them grow their business.

We see infrastructure as a service as nascent and very fragmented in our country and around the world. Europe and APAC are in even earlier stages of formation and consolidation, and many see this as a great expansion opportunity. There are single-tenant data centers and workloads still resident on customer-prem that will ultimately find their way out into protected and secure data center environments via private or shared public infrastructure.

In addition, INAP is well positioned for additional revenue and margin expansion by moving upstream to larger MRR deals. We also believe that a good way to achieve broader scale is through strategic initiatives. The discussions in process have started in earnest earlier in the first quarter and generated by our desire to gain scale and protect the company's long-term success in a growing industry.

The company, along with is advisors, reached out to the most likely interested parties, including strategic and financial players. This exploration has led to some very interesting in-bound interest in INAP's capabilities as well.

Most of the conversations have been extremely educational in learning how others view the industry and the opportunity to get in early on consolidation. Certainly, you can imagine that many other CEOs in what I would call the $300 million to $600 million club, mostly private, are open to meetings to learn about the benefits of a merger or other strategic transactions.

Most agree that smaller retail colo operators need to transform into a retail plus wholesale model to grow revenue. Tapping into enterprise demands seems to be the best path, but not approaching hyper-scale levels for the most part, which is very competitive and mostly build-to-suit by REITs or infrastructure funds. Our go-to-market approach, which works very well, is aimed at fintech, mobile app, gaming, healthcare, software and other verticals that we've been very successful in.

We believe that we can be even more successful with scale in metro markets we serve. The goal is to continue to evolve INAP into a company that can keep pace with ever-increasing infrastructure services demand. And it's a balancing act as we continue to run the business well, minimize distractions and working towards a transaction in the appropriate amount of time and speed, and I assure you that we are currently focused on executing on our plans daily. And we'll report back to you once we make some final decisions.

So at this point, let me turn it over to our CFO, Jim Keeley, to go through the quarter. Jim?

Thanks, Pete, and Good morning, everyone. As previously disclosed, the 2018 results include SingleHop operations beginning March 1, 2018, and are, therefore, not comparable to the prior periods. Please turn to Slide 6, Quarterly Financial Summary.

Overall, our quarterly financial trends have stabilized with the completion of last year's portfolio rationalization, which is evidenced by the consistency in our quarter-over-quarter financials for the first half of 2019. As we execute on our goals to drive organic growth, manage our costs and deliver strong cash flows, we are confident that the recent positive trends will continue.

Total revenue as reported was $73.1 million in the second quarter of 2019, a slight decrease sequentially and a 10.8% decrease year-over-year. The sequential decrease was essentially flat after adjusting for churn from the last remaining customers from the exited data centers. The decrease year-over-year was primarily due to the planned data center exits and churn from several large customers in 2018.

Now let's turn to the consolidated earnings summary, Slide 7. Net loss in the second quarter was $18.6 million, improving $1 million from $19.6 million in the first quarter of 2019, as the cost of restructuring and exit activities, largely related to the closed data centers, decreased $1.3 million quarter-over-quarter. On a normalized non-GAAP basis, second quarter 2019 net loss remained relatively flat at $16.7 million compared to the prior quarter and increased $6.2 million versus $10.5 million in the second quarter of 2018.

Sequentially, an increase in income from operations, resulting primarily from the cost savings initiated in the first half of the year, were offset by an increase in interest expense. The year-over-year increase was primarily due to lower revenue and higher interest expense, partially offset by cost savings from the exited data centers and other initiatives.

Adjusted EBITDA in the second quarter was $24.4 million, with adjusted EBITDA margin of 33.4%, a 130 basis point improvement over the prior quarter. Adjusted EBITDA increased primarily due to cost savings initiated in the first half of this year.

Capital expenditures in the second quarter were $7.8 million, compared to $8.6 million last quarter and $11.1 million in the second quarter of 2018. The second quarter spend was predominantly for success-based capital to fund growth through customer installations. Our capital expenditure plan for 2019 will continue to focus on customer growth and maintenance capital, in turn shortening our returns on capital investments and generating higher free cash flow.

As Pete mentioned earlier, we closed a megawatt deal in L.A., which serves as an anchor to build out that facility in late 2019 to early 2020. A portion of the CapEx for this project is included in our current outlook for 2019, with the remainder to be incurred in 2020. Adjusted EBITDA less CapEx increased $1.6 million sequentially to $16.6 million in the second quarter of 2019, the result of lower expenses and capital expenditures.

Now let's turn to Slide 8, our INAP U.S. business unit results. U.S. revenue of $57.5 million in the second quarter of 2019 was flat sequentially and a decrease of 10.3% year-over-year. The second quarter revenue included churn from exited data centers offset by a global transfer pricing adjustment between operating segments. The decrease year-over-year was primarily due to the planned data center exits and churn from several large customers in 2018.

U.S. business unit contribution was $25.5 million in the second quarter, a 3.5% increase compared to the first quarter of 2019 and a 14.6% decrease from the second quarter of 2018. The sequential increase was primarily due to cost savings implemented in the second quarter of 2019 partially offset by seasonal power increases. The year-over-year decrease was due to planned data center exits and churn from several large customers in 2018 partially offset by ongoing cost savings initiated in the first half of 2019.

Now let's go to Slide 9 to discuss INAP international business unit results. International revenue was $15.7 million in the second quarter of 2019, a decrease of 2.3% sequentially and 12.4% year-over-year. The sequential decrease was primarily due to the global transfer pricing adjustment between segments. The decrease year-over-year was primarily due to churn from iWeb legacy products.

The international business unit contribution was $5.6 million in the second quarter of 2019, an 11.4% decrease compared with the first quarter of 2019 and a 6.6% decrease from the second quarter of 2018. The sequential decrease was due to lower revenue from the global transfer pricing adjustment, higher seasonal power demands and rent related to the new Coke facility. The year-over-year decrease was due to the churn from iWeb legacy products offset by ongoing cost-savings initiatives.

Moving to Slide 10, titled Cash Flow and Balance Sheet. Free cash flow, defined as net cash flows provided by operating activities less capital expenditures, was $4 million in the second quarter of 2019, an increase of $10.3 million from the prior quarter and $300,000 from the second quarter of 2018. The increase sequentially was primarily due to working capital timing, a lower net loss and slightly lower capital expenditures.

Cash paid for interest was $15.6 million in the second quarter, $1.3 million higher than the prior quarter, as several months of free rent on some of our finance leases ended and higher interest from the term loan resulting from the rate change. This brings unlevered free cash flow to $19.6 million in the second quarter of 2019, compared to just $8 million in the previous quarter and $20.1 million last year.

Total debt of $687.8 million includes $268.4 million in finance lease obligations, previously capital lease obligations on our balance sheet. $169.2 million of our capital lease obligations are excluded from debt for bank covenant purposes, as they were operating leases at the time of refinancing. Our covenant-based leverage ratio was 5.9 in the second quarter of 2019, 5.7 in the first quarter of 2019, 5.2 in the second quarter of 2018.

Cash and cash equivalents were $10.5 million at the end of the second quarter of 2019, versus $8.3 million in the prior quarter. The increase of $2.2 million was working capital timing.

With half the year complete and, as Pete mentioned, any potential tuck-ins on hold while we complete the strategic review, we are revising our guidance for the second half of the year of 2019. We expect revenue in the range of $290 million to $300 million, adjusted EBITDA in the range of $95 million to $105 million, and CapEx between $25 million and $30 million for the year.

With the reset of our baseline revenues and adjusted EBITDA in Q1, we will continue to tightly manage our capital expenditures and drive cost efficiencies in order to maintain consistent cash flows for the year.

Thanks, Jim. Let's turn to Slide 11 for our closing remarks. So the industry is evolving into a colo ed sprawl, hybrid cloud and renewed demand for low latency and high performance network connectivity. INAP can deliver all 3. Customers are selecting multiple vendors depending on site location and application-specific requirements.

INAP is well-positioned to gain its fair share of this demand in the future, and we're looking for ways to improve scale and our full potential. We scored a few high-profile deals in the second quarter. It gives us confidence across our entire product set, with colo expansion in L.A. and increased activity in Phoenix, private cloud expansions in Seattle and Ashburn, and advanced discussions on network transport deals.

The momentum is expected to carry throughout the year and into 2020 as we lay the groundwork with enterprise customers and lead generators, either through our direct sales force or our channel partners. As we look ahead to the back half of the year, we remain conservative on our spending and continue to optimize our cost structure aligning with INAP 2.0.

And for my final comment of our prepared remarks, we all agree that there's no time to be wasted in exploring our strategic alternatives. We are on it and look to conclude our work as soon as possible and report back. We may not be able to comment on hypotheticals today, so while I appreciate the interest, we'll just have to play a few of these scenarios out in real time.

I also want to thank Jim Keeley for his service to INAP. I really appreciate his leadership, and this is his last call at INAP, and we thank him very much for his service.

Pete, just on the guide, just so I understand this based on your commentary and what you put in the press release, if churn is actually at its lowest levels and there was no big customer delta, unless you're expecting one in the back half of the year, it means that you must have probably contemplated some inorganic tuck-ins or something prior, so can you just talk about the size of that? And is that also part of this whole we don't want to get into duplicate markets as part of the strategic review?

That's right, Dan. I mean in the review that we've been working on with Moelis and LionTree, we've talked to a lot of players, and some of the matches basically cover the same territory. The property that we were looking at in the first quarter, that was basically slated for the second quarter, and it's a modest tuck-in and bolt-in, but it was market we needed -- seemed to be a duplicate, so we basically put it on hold and revised guidance to be pure organic based on the first 2 quarters.

The second quarter lowest churn experience was just really good for us for the first time, and I think it has a lot to do with the infrastructure we're putting in place in the back office. Clearly, we're working on the customer experience a lot more than ever before, and it's probably taken almost 2 years to get to this point, to make it as good as it is. And it could always be better, but it's night-and-day from where it was. So that's manifesting itself into a positive impact.

So if you take into account what I would call a slower first quarter, we definitely got out of the gate a little slow in Q1, with some things dragging into Q2. Q2 was a very good bookings quarter and basically a rebound. So once you net out the planned inorganic deals that we basically had on the table and you incorporate Q1, it's not rocket science to basically annualize June year-to-date and basically reset the baseline and get through the process. So that's the goal.

And then just in -- you talked about Atlanta and Phoenix. Obviously, I think that might help in the strategic review to the extent you can get a big deal over -- I don't know if there's any consideration, Pete, to also saving cash in case you happen to get a 2-megawatt deal, but just how close are you to something, particularly in Phoenix, and what kind of size should we be looking at?

Well, last year, we did 2 or 3 megawatt deals. The first one we did, for L.A., was a little bit later than we expected, but it happened in 2Q. Frankly, I thought we'd have 2 by now. There's one right on the edge, so we're trying to push that one. But I think we're currently on the diet of 2 to 3 to 4 megawatt deals at our current pace. So, frankly, it's a little bit of luck and a lot of hard work to make these things align, but we're now at the table at 1- to 3-megawatt opportunities that we never were before.

So we're entering the RFP process. We're working with channels partners. We've had meetings around the country with them to have eye-to-eye contact with our channel partners and say, listen, we want the bigger deals now. INAP is converting from just pure rack-and-cage to halls. We want to sell 1- to 3-megawatts, and here's our portfolio.

So we rolled out to the channel partners our footprint with the expansion opportunities across the NFL cities that we have, and, frankly, the meetings were pretty enlightening because they -- I would say 80% of them said, we didn't know you had that. And so that -- there is still a lot of work to do there, but from the senior levels down to the sales team, down to the marketing team, we have a great channel partner manager in our company. We are getting in front of them to try to reintroduce them to the INAP portfolio, and it's really work we've got to do bottoms-up. I know we've been poking at it for 2 years, but we still could do more, and those meetings are really critical, and having that eye contact from the CEO down, it's really helpful.

So that's what we've been working on, and I think, frankly, those deals on the edge are out there, so we just need to get into the mix and then play to win. And because we have connectivity, it's kind of the tiebreaker. The NFL city portfolio, the connectivity and the ability to put on multiple megawatts now is an advantage. So Phoenix is like that, Atlanta is like that, Dallas is like that. L.A. was capped. We're trying to expand it now. Montreal is capped. We're already working on plans to expand Montreal.

So we can show that if you need 1 to 3 megawatts now, you can come to us and we can put it up probably as fast as anybody. So that is part of the future for us, and that's where we are in our evolution.

So can you quantify exactly how much more revenue and EBITDA is left in your current run rate that will be exiting the data centers from this identified space, or can you definitively state that there's no more forced churn or exits of the third-party space from the company?

There are no more planned forced migrations in our body right now. Now, that being said, there could be a building down the road that we want to look at again, but right now, for 2019, it's all done. It dragged a little bit into the first quarter, as you know, Frankly, but for the most part, the second quarter was clean, pretty much done, so that's a big accomplishment for us.

I know it was a little bit of -- there are some hangers-on, if you will, in some of the data centers, that it's difficult enough to move a customer out of a data center, but we were pretty understanding of some in select markets that really needed more time. So the second quarter is clean. First quarter still has some drag-along, but we're done.

So you say there might be some in the future. If I look at Slide 5, you have these 30 additional buildings with less than 5 megawatts. I mean what's the revenue and EBITDA associated with those? Because I would assume those would be potential targets you might revisit next year.

As I mentioned in my script, we're probably 85%-15% in terms of relationship between our 14 flagships and everything else. So let's say 15% of the balance of our smaller data centers that are in partner sites, like the REITs that you know, we've been grooming some of those. It won't be such a huge impact, because the revenues are much smaller in terms of impact, but we've been grooming every collection of partner sites since I've been here.

And without naming names, the biggest collection has been adjusted already this year. We have term sheets in front of another as we speak, and there are 2 more on the edge, at the end, that we still need to address, mostly in Europe. But that's mostly cost-savings initiatives and clean-up. If we lose some revenue in a squeeze-down of a small colo plus POP data center, it would be de minimis. But for the most part, the hardest part of the work that we did was in the flagship category, slash, bigger partner sites that are now out of our body.

The turnkey facilities we have now are primarily in DRT, so we have 6 out of 8 that are in great Tier 3 facilities with digital. The rest are with significant partners, but they're much smaller sites, probably started as POP somewhere around the world.

So we can't talk about it too much today. There's a lot of different flavors of that, but, as you can imagine, there are strategics that are interested in pure-play specifics, whether it's colo or managed services. There are a lot of players out there that are more pure-play in nature. We're looking at everything that basically makes sense. I can't really comment on the financial sponsors or the strategic interest, but you know that we know a lot of these players, especially through Moelis and LionTree. We've touched everybody that probably would have some interest, and we're trying to run down the best ones for now to see what makes sense.

The non-core asset sales are still interesting for us, because 1 or 2 assets definitely could help us delever. We have always had interest in a data center here or there or a smaller business unit in our body here or there, and I think with putting everything on the table as part of the complete review, we're going to start making some decisions on what are the best things to act on in the coming weeks/months. The sooner the better, so we're working on it every day. It's clearly an initiative that's taking a lot of time, but worth every minute getting to where we want to get to for 2020.

I'm sure the answer is yes, but we backfill right away. We have a very strong leadership team. We have a strong international leader out of Canada, we have a new U.S. strong leader that we consolidated under, we have a great inside sales team leader that is working well, and we have a really good channel partner leader that make up the four horsemen, if you will, so we like the leadership team we have.

There's been some optimizing of the team. That's probably more normal than not. But the four horsemen are really coming into their own, and it sort of manifested itself in the second quarter. I think at some point now I can say we're hitting on all cylinders, and we have really good opportunity to keep going. But we have the people we need at the leadership position all working for our Chief Operating Officer, Andy Day, and I think everyone would agree here that he is engaged daily with the sales team.

The marketing team is also very strong in the company, that we picked up mostly from SingleHop under our CMO that's with us today here. And I think we've built the infrastructure for the back office and, frankly, the front office that we need for the future. It's taken some time, but we have the leaders in place.

We typically run somewhere between 40 and 50 quota-bearing reps. That flexes here and there. That's supplemented by the outsource channel team. And having met with them in many of the cities in our tour, there's another 20 people per city that are working for us. So we -- and we put that back together. The channel partners basically disappeared in '16 and '17, but they're getting re-energized, and we're trying to work with them the best way we can to get them back in the game.

So the 40 to 50 is probably table stakes. We flex up sometimes to 60, but we're supplementing some with new sales because we're going larger for enterprise. The channel partners really are the secret sauce. So probably the answer is somewhere between 40 and 50 plus channel is who we are right now, plus inside sales.

Speed is important from an operations perspective. Speed is important, because when you're trying to run a business and you're doing these extra-curricular activities, it takes a lot of management time. So we want to be careful to run through this review in a very smart and diligent way, have the appropriate combination of speed and so-called doing it right, so we're trying to be patient as well as aggressive in trying to get through this work.

As you can imagine, we started in the first quarter in earnest. We're in 2Q. You can learn a lot in 2 quarters to figure out where you're going. So we're trying to do it as fast as possible, but we also want to do it right, so we're putting in the time. I think my team and those working with us are doing double and triple duty. There's a lot of sweating going on. So we're trying to get through it, but we're -- you can appreciate, Adam, we're trying to run a company at the same time, so we'd like to get through it as soon as possible.

Never. No. We definitely have to do 2 things at the same time. As you can imagine, it does take -- it takes a lot of finance time for sure, and our advisors are putting in a lot of time as well. So we're able to do 2 things at the same time. We're not going to slight our initiative to sell, so we're trying to do 2 things at the same time.

Well, I would be guessing, but I would say it's 3x or 4x better, easily, at least for old Internap. I would say when I came in, it was almost nonexistent. This pipeline is manageable. I always think we can do more too, but given what we started with, it didn't exist at all.

In the case of SingleHop, I would say the business was run very well, and it had a pipeline and a lot of the infrastructure -- both inside sales and channel partnership infrastructure and marketing. I mean we benefited from that. That acquisition probably gave us not only a platform but a team to help in that area. That really gave us a jump-start. So I would say they had their act together before old Internap did, and then they made us better. So that's the combination.

I'm sorry if I missed this, but on Phoenix, can you talk about the capacity that is there without additional CapEx? And then a separate question -- are there customers that really want to ride on your fiber networks only?

In the case of Phoenix, Phoenix is our largest flagship. It probably can do 15 megawatts with CapEx. For success-based CapEx, we probably could do 3 megawatts to 5 now. That would be building out a hall, for example. But for critical infrastructure, to get to 15, that would be a little heavier on the CapEx side, but we can do it. We basically have a power station right on campus there in Chandler.

So we're very excited about that flagship. We've probably run 50 tours through there in the last 3 months, or more, so we'll catch -- we're going to catch a fish soon, I'm pretty sure. And the good news about Phoenix is that they can come in right away, and they see speed to installation a big advantage. So we're very excited about that.

On the network side, you may recall that we lit 8 metro markets with dark fiber from Zayo, and we put our own Sienna gear on it. And our network leadership team is discussing pure transport deals with major enterprise customers in the 7-figure range, which means they want to connect multiple cities in a resilient protected fiber construct with wave backup in major markets for their own enterprise. We've never had that before.

So everything that we thought we would do had a first intention, which is to harden our own backbone, because the company was kind of short of bandwidth here and there. We had bottlenecks. We had outages related to surges of capacity. We've been working like crazy to harden our backbone and to put more facilities in place to make it more resilient. That's paying dividends now.

So the deals we're actually talking about on the network transport side relate to the work that we did in the fiber rings. In the case of North America, the increase in bandwidth and the backbone with the carriers to make our facilities more resilient. It wasn't much of an investment, per se, because the dark fiber rings were already in place, and the negotiation with carriers, which was done very well by our team not only saving costs, but maximizing the bandwidth across the backbone because we focused on re-engineering the way it was set up.

And that's being presented now to customers who just need connectivity A to B, inter-city, cross-country. To the extent they have colo with us already and then see what we can do on the network side and be a 1-stop shop and see all the way through network management, it's a big attraction. We thought we would get here, and now we're pitching those deals, so I'm very encouraged by it. We're looking forward to reporting on that, and we'll see how it goes. But the network at INAP is a differentiator, and we've invested in it and re-engineered it for the last 18 months.

Maybe just 1 more question guidance, just to make sure that we're all clear. Talking about moving from the second quarter to the third quarter, are there any adjustments that need to be made to get to a better run rate as you think about your guidance for the rest of the year, or is the second quarter kind of a clean run rate quarter?

I think 2Q is a clean run rate. As I mentioned in the previous report, I think there are some things in there that are in our favor. They've just got to come down. Even if we sell a bigger deal, let's say a 1-megawatt deal, it's not going to book -- it may book, but it won't bill in Q3 because it will take time to install it.

So I would say the third quarter would be more of the same, with some growth opportunities that are coming through, particularly on the cloud side, that are more simultaneous. As soon as you sell a cloud deal in Seattle, it books. So we're looking to keep that momentum up that will help the cadence in the quarter, but nothing unusual, unless it's -- like I said, if it's one of those bigger network deals or colo deals, more than likely, it'll book but not bill completely in 3Q, so more of the same.

So if we think about your $20 million backlog versus the low end and the high end of your guidance, maybe kind of help us understand how much of that backlog needs to come online, what you guys are kind of assuming in terms of how much of that comes online, to get to that (indiscernible).

Because a lot of that backlog is that megawatt deal, there's probably a lot in the back half of the year, so I would say 75%-25%. 25% we'll get in the year, and 75% will push, only because the bigger they are, the longer they take. So that's the nature of these enterprise deals that are booking pretty big numbers. So it's more of an end of year 2020 momentum play.

And then I guess in terms of the strategic review, it sounds like you guys are having a lot of discussions with other players on a merger of 2 portfolios to create kind of a bigger and better, more competitive portfolio. I am curious if you could maybe frame, as you're having these discussions, how people think about the INAP portfolio and where they see the most strategic value, whether it's the network or your colocation footprint or your international exposure?

That's a great question. I think there's some consistency around Tier 3 colo sites. Those 14 flagships are really attractive. And the added benefit of having the network connected to it attracts certain people, those who see colo and connectivity as one idea, especially when you think about latency and least cost routing and just keeping the network up 24/7. Those 2 go together, and I think it's back on vogue in many ways. You hear a lot of the larger data center companies talking about investments in connectivity now.

I think Europe and Latin America has figured it out first, in some ways. A lot of the portfolios in Europe already have network connectivity and colo together. Latin America, the same way. And then there are other pure-play providers that really are focusing on IT infrastructure and getting really good at it, and professional services on top of that, which is really driven by talent and headcount. There's a vein of folks that are really focused on that too.

In our case, we find that having bare metal servers as part of our portfolio has not hurt us in any way. It's actually helped us. It's very complementary. Many customers have both colo and bare metal. We even have a program, which is very attractive, where customers can port spend between colo and bare metal, which means they -- sometimes they don't know. They get into a project and they start one way, and we don't lock them in. We just basically say keep the same revenue, just port it to this other product and keep going with us. That's really helpful to some of our best customers.

So we find it as uniquely attractive in the customer base that we have, and so you have -- long way of saying that you have pure-play players and then others who see the environment as a full solution set to enterprise customers, and that's how we're playing it today.

I'm going to circle back again on the guidance, and I know you talked a little bit about it. I think it was even the first questioner. But when you -- your prior range assumes some strategic or a tuck-in type deal, but how much of that $30 million difference was assumed from this versus sort of any change or deterioration in the baseline of your core business assumptions?

Well, it's a little bit of a mix, but once we had a first quarter result that was a little bit off and having been in effect at the beginning of the year, that has a multiplier effect on the whole calendar year for sure. We thought pretty clearly that we can make it up, and once we decided to pull back on the tuck-ins, we just focused on pure organic, but the path to get there on the original trend was really a 2-cushion shot. We had to recover in the second quarter, which we did, and then we had to add a tuck-in that we had under LOI, which we didn't.

And so the math suggested let's just not do it for the sake of revenue and let's be smart about it, because the worst thing we can do is do a bad deal or a deal simply to hit a number when we're in the middle of a strategic review and the things that we're seeing would render it a duplicate. So we basically said let's be smart about it, let's do a time out, focus on organic, focus on the new baseline, and offer that today as a way to rebalance what we're doing.

And then, frankly, we'll see what happens in the next coming months. Some of those deals are still there, so we may be back to them, but we thought it would be best today to just express a realization the first quarter was a little slow and take the inorganic out of the trend and sit tight and manage the portfolio we have, and let's get through the next couple weeks or so to see where we end up.

And then maybe just as it relates to your target model with sort of the latest reset, what sort of targets should we be modeling for revenue, EBITDA margins, CapEx? I know you talked about a sort of revenue 4% to 8% growth, and there was sort of a margin implied there of, at some point, 40%. Where are we at with that target model?

Well, the revenue and EBITDA trends from 1Q and 2Q you can depend on. We still have some upside in EBITDA back half of the year. We have some cost initiatives in place. That's still our plan, to try to get EBITDA up by the time we exit the end of the year. Some of the things that we want to play forward is the investment in marketing against that, but we're still moving in that same direction.

The other thing you should note, Erik, is that we've lowered the capital program in the outlook as well. So the thing that's near and dear to our heart from a baseline perspective is free cash flow. So EBITDA less CapEx is still on the original guidance target. So we're trying to balance all 3 components, not just revenue and EBITDA, but the capital program related to the inorganic was removed as well.

So if you study first quarter, and probably second quarter now that it's pretty clean, that's the baseline we're working on. What we called out today is the cost initiatives are realigning some of the infrastructure and fixed costs of the company to a scenario where we're 6 data centers lighter and we're more focused on selling into the flagships on net. So we're really honing in on being lean but very deliberate in selling what we have, and that's going to save some costs.

And then maybe just finally the strategic alternatives. I realize the process is ongoing, but where do you see the major concerns or hurdles for sort of getting a deal done? And what sort of scenario would make sense to do a deal considering some of the limitations in the model?

I really can't comment on that, Erik, but we're trying to do the best deal we can that's in the best interest of shareholders. That's our goal. The different flavors we're looking at, there are so many varieties, actually, but as we narrow them down, we want to make the best decision to put us in position in 2020 to gain scale. So at this point, I really can't comment more than that, but we'll continue our work and report back as soon as we have something.